Slovakia - the Future of Foodservice to 2021

10/11/2017 - 10:44
Following the dissolution of Czechoslovakia in 1993, Slovakia was famously referred to as 'a black hole in the heart of Europe'. During the 1990’s, the country had one of the worst-performing economies on the continent, and found itself isolated from Europe’s mainstream.

Ambitious economic reform and greater international integration, including the country’s accession to the EU (2004), NATO (2004) and the Eurozone (2009), has since seen the country grow into a regional economic leader.

The low-cost, high-skilled nature of Slovakia’s labor force has encouraged significant foreign direct investment (FDI), which includes the planned construction of a EUR€ 1.4 billion Jaguar plant in Nitra. As a result, the country’s current unemployment rate stands at 8.2% (5.6% in Bratislava), below both the EU and Eurozone averages of 8.7% and 9.6%, respectively.

Profit sector summary

In 2016, Slovakia’s foodservice profit sector was valued at EUR€ 2.6 billion (or USD$ 2.7 billion), making it one of the smallest markets in Europe. Since 2014, value growth has, however, far outpaced the wider European average . Between 2014 and 2016, the country’s profit sector grew at a CAGR of 3.1%, well above Europe’s 0.9% (2.1% when excluding Russia and Ukraine) over the same period.

Slovakia has among the lowest levels of purchasing power in the European Union, resulting in a highly price-orientated market. Indeed, 40% of surveyed consumers cite ‘price’ to be the ‘most important’ factor influencing decision making within the foodservice market. Despite the country’s wider economic resilience, over 30% of Slovakians are still unconfident in their personal financial wellbeing.

Even among younger demographics, few Slovakians view eating out as part of their ‘daily routines’, with many claiming that their budget doesn’t always allow them to eat outside the home.

Quick service restaurants summary

Following value growth at a CAGR of 3.4% since 2014, the Slovakian QSR market was valued at EUR€ 385 million in 2016. Visits to the channel are predictably skewed towards younger consumers, with 32% of consumers aged between 16 and 24 having visited the channel in the past week, compared to just 5% among those aged over 65.

Since the country’s 'Velvet Divorce' and the fall of communism, western fast food such as pizza, burgers and hot dogs have become popular. However, this has not led to a complete Americanization of the market. Although American QSR brands – McDonald’s, Subway, KFC – lead the market, they merely commanded a combined 7.5% share of channel value in 2016. Furthermore, despite growing consumer interest in American fast food, a number of major QSR players, including Burger King and KFC, have struggled in the country, with the former withdrawing from the market entirely in 2010.

The limited growth of chain outlets can be largely attributed to regional disparities, creating little scope for expansion outside of the country’s capital and secondary cities. Western fast food chains are also more expensive than local alternatives, which is especially detrimental, given the price-orientated nature of the market. 35% of QSR consumers cite ‘price’ to be the most important factor when choosing where to eat out.

Over the next five years (2016 – 2021), revenue growth in the Slovakian QSR channel is forecast to contract slightly to a CAGR of 2.9%, but will nevertheless remain stronger than the average value growth forecasted across the entire profit sector (at a CAGR of 2.7%). The channel is forecast to reach a valuation of EUR€ 455 million in 2021.

Full service restaurants summary

In 2016 Slovakia’s FSR market was valued at approximately EUR€ 500 million, representing 18.2% of profit sector revenue. Value growth in the channel reached a CAGR of 3.3% between 2014 and 2016, outpacing the overall profit sector average of 3.1% during the same period.

The market is heavily fragmented, with independent operators accounting for 98.1% of outlets in 2016. In recent years, however, a number of casual dining brands, including Wagamama and Vapiano, have entered the market. These restaurants’ lower price points and vibrant atmospheres are expected to resonate well with younger consumers, and offer the market a much needed boost in regard to visit frequency.

Transparency and localism have become a hot-topic in Slovakia, following accusations that the same branded food products sold in Western Europe were of higher quality than those available in Central/Eastern Europe. As a result, assurances of origin and quality are needed, especially in high priced channels such as FSR.

Embracing home delivery solutions will open up additional revenue streams in coming years, as time-scarce urbanites utilize online delivery websites to make their busy lives easier. To 2021, revenue generated from delivery is forecast to grow at a CAGR of 4.0%, outpacing revenue growth from ‘dine-in’ occasions (with a CAGR of 2.8%).

Between 2016 and 2021, the Slovakian FSR channel is forecast to grow at a CAGR of 2.9%, reaching a valuation of EUR€ 577 million.

Coffee and tea shops summary

Valued at EUR€ 93 million in 2016, the coffee and tea shop channel accounts for a marginal 3.4% share of the overall Slovakian profit sector value. However, value growth in the channel reached a CAGR of 3.6% between 2014 and 2016, making it one of the fastest-growing foodservice channels.

Out-of-home coffee consumption in the country is high. On average, Slovakians consumed 0.13 kg of on-trade coffee per capita in 2016, ranking above Visegrad neighbors in Hungary (0.06 kg) and the Czech Republic (0.09 kg).

Coffee and tea shops have become increasingly successful at embedding themselves into consumers’ social lives, with 56% of coffee shop visits made for the purpose of socializing with either friends or colleagues.

The arrival of Starbucks in late 2016 is expected to ‘shake up’ the country’s coffee shop channel, and has already reignited talk of Costa Coffee and other global brands entering the market in coming years. Whilst domestic operators are likely wary of Starbucks’ entrance, the brand should be successful in driving up average consumer spending in the channel which, in 2016, stood at just EUR€ 2.32.

In the meantime, however, the market remains heavily fragmented, with independent operators making up 94.7% of the country’s 1,524 coffee shops. Currently low consumer spending is driven by a lack of interest in ‘fuller’ meal solutions in the channel, with just 8% of surveyed consumers opting for a ‘main’ or ‘light’ meal on their most recent visit.

Slovakia’s coffee and tea shop channel is forecast to record value growth at a CAGR of 3.2% between 2016 and 2021, reaching an overall valuation of EUR€ 109 million in 2021.

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